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PREDICTABILITY OF THE CONSEQUENCES CAUSED BY ACTS OF BREACH IN ACCORDANCE WITH...
18/09/2023
PREDICTABILITY OF THE CONSEQUENCES CAUSED BY ACTS OF BREACH (TO THE LEVEL THAT THE DETRIMENT DEPRIVE WHAT THE VIOLATED PARTY IS ENTITLED TO EXPECT FROM THE CONTRACT) IN ACCORDANCE WITH THE UNITED NATIONS CONVENTION OF INTERNATIONAL SALE OF GOODS (1980) [CISG].
Dr./Atty Vo Duc Duy
Raising the issue
As we all know, in a contract, an agreement or an indenture, the terms and conditions all show the freedom, will and mutual agreement of all parties. However, in reality, lots of violations to the agreed terms and conditions are noticed. And these violations have led to consequences which have taken away the expectation and goodwill for long –lasting collaboration of the party who suffers from these acts, regardless of their anticipation and prevention. In Vietnam, the Commercial Law has been established and has induced a robust improvement and the economic integration into international economics community. Besides, Vietnam officially joined United Nations convention on contracts for the international sale of goods (1980) [CISG]. Thus, not only have novel opportunities increasingly been approachable to Vietnamese businessmen, but more challenging obstacles have also arisen and awaited to be faced. Within the scope of this article, I would like to present the predictability, legal basis as well as commercial conventions to assist the business people in being better orientated in trade integration.
2.1. In accordance with CISG 1980, the elements that constitute the fundamentality of the breach of contract are:
- Considerable detriments to the violated party
- Breach of contract is the cause of considerable detriments to the violated.
2.2. What is considerable detriment? According to CISG 1980, considerable detriment is what renders the failure of the violated party to meet with their expectation (what they wish to achieve) from the contract. CISG 1980 does not specifically defines what this party expect. Therefore, the specification of the level to which the detriment is deemed considerable is up to the hands of the court (or other competent authorities’), in accordance with each individual case, each individual dispute, which are usually the following matters:
(i)The court of arbitration perceives the high percentage of merchandise whose quality does not meet with the requirements of the contract as a considerable detriment;
(ii) The court of arbitration perceives the loss of profit, reputational detriment as well as detriments to the rights and the legal benefits as considerable detriment when fundamental breach is discussed;
(iii) The court of arbitration does not take into account elements of considerable detriment when fundamental breach is discussed.
2.3. What the violated party is entitled to expect from the contract has tremendously diminished. Article 25 of CISG 1980 does not mention the level of detriment but the importance of the benefits which is constituted by the contract and the obligations of the parties. In other words, the existence of benefits and legal desire is the sole element to tell whether what is taken away from the violated party’s expectation is considerable. Here is Article 25 from CISG 1980 “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what. he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result”.
2.4. The acts of not fulfilling the contract obligations of the violator always result in the deprivation of what the violated party expects, with or without detriment: (i) the seller does not deliver the merchandise; (ii) the sellers does not submit the cerficates related to the merchandise to the purchaser; (iii)the purchaser does not conduct the payment; (iv) the purchaser does not receive the merchandise. Whether what the purchaser expects is deprived or not also depends on whether the quality of the merchandise fails to meet the standards regulated by the contract: (i) Purchasing for resale (commercial capability of the merchandise); (ii) Purchasing for use (usability of the merchandise). [1]
3/ The predictability of the consequences caused by the acts of breach (the detriment is severe enough to the level of considerable deprivation of what the violated party is entitled to expect from the contract).
3.1. Predictability includes the cases in which the parties have already had the agreement and prediction. The following cases should be taken into account:
3.3. These following cases can be taken into account when predictability is being looked at: (i) If the parties have already made it clear in the contract that the specific obligations or the manner in which the obligations are carried out would be the important content to the parties, the importance of those obligations has no reason to be reduced by the principles of predictability; (ii) If the parties have already discussed the importance of one specific obligation and the manner in which it is carried out but no further regulations is stated in the contract and the violated party can prove this, the violator cannot hold on to the idea that they could not foresee the consequence of the act of breach; (iii) Only when the importance of the violated obligation is not clearly defined in the contract or not.
4. Specific suggestion to the corporate
By understanding fundamental breach of international purchase contract, the business institution and legal bodies can avoid losses. Within the scope of the article and works of experiment of our consulting job, we would like to have some suggestions:
5. Conclusion
One of the most common legal risks which are most dealt with is the dispute over quality, copyright and insurance. When dealing with insurance contracts of other countries, it is needed to pay attention to the coverage and exclusion clause, since the language used in insurance contract is sophisticated, therefore if business people do notmake proper research on that issue, it will be hard to claims their rights when disputes arise. If any clause presents unclear to the business people, they should request an explanation from the insurance company.
One more thing to keep in mind: it should be stated clearly in the contract that every dispute related to the contract will be resolved by a specific center of arbitration, based on the rules of this center. Under no circumstance should it be written that the dispute will be resolve by referee or court, since this will cause both referees and courts unable to take the case of the business institution when dispute happens.
Dr./Atty Vo Duc Duy
Raising the issue
As we all know, in a contract, an agreement or an indenture, the terms and conditions all show the freedom, will and mutual agreement of all parties. However, in reality, lots of violations to the agreed terms and conditions are noticed. And these violations have led to consequences which have taken away the expectation and goodwill for long –lasting collaboration of the party who suffers from these acts, regardless of their anticipation and prevention. In Vietnam, the Commercial Law has been established and has induced a robust improvement and the economic integration into international economics community. Besides, Vietnam officially joined United Nations convention on contracts for the international sale of goods (1980) [CISG]. Thus, not only have novel opportunities increasingly been approachable to Vietnamese businessmen, but more challenging obstacles have also arisen and awaited to be faced. Within the scope of this article, I would like to present the predictability, legal basis as well as commercial conventions to assist the business people in being better orientated in trade integration.
- Conceptions and realities of fundamental breach of international purchase contracts
- Breach of a contract means failure to undertake or falsely undertake the obligations discussed by the parties, as regulated by the commercial habits of the parties, the law that modifies the contract or commercial convention.
- In accordance with CISG 1980, “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result”. Based on that, theoretically, one can notice that fundamental breach of contract is specified in regard of these elements: there must be breach of contract obligations; that breach of contract must lead to the consequence that one party fails to meet their expectation (what they wish to achieve) from the contract; the violator is incapable of foreseeing the consequences of the breach.
2.1. In accordance with CISG 1980, the elements that constitute the fundamentality of the breach of contract are:
- Considerable detriments to the violated party
- Breach of contract is the cause of considerable detriments to the violated.
2.2. What is considerable detriment? According to CISG 1980, considerable detriment is what renders the failure of the violated party to meet with their expectation (what they wish to achieve) from the contract. CISG 1980 does not specifically defines what this party expect. Therefore, the specification of the level to which the detriment is deemed considerable is up to the hands of the court (or other competent authorities’), in accordance with each individual case, each individual dispute, which are usually the following matters:
(i)The court of arbitration perceives the high percentage of merchandise whose quality does not meet with the requirements of the contract as a considerable detriment;
(ii) The court of arbitration perceives the loss of profit, reputational detriment as well as detriments to the rights and the legal benefits as considerable detriment when fundamental breach is discussed;
(iii) The court of arbitration does not take into account elements of considerable detriment when fundamental breach is discussed.
2.3. What the violated party is entitled to expect from the contract has tremendously diminished. Article 25 of CISG 1980 does not mention the level of detriment but the importance of the benefits which is constituted by the contract and the obligations of the parties. In other words, the existence of benefits and legal desire is the sole element to tell whether what is taken away from the violated party’s expectation is considerable. Here is Article 25 from CISG 1980 “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what. he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result”.
2.4. The acts of not fulfilling the contract obligations of the violator always result in the deprivation of what the violated party expects, with or without detriment: (i) the seller does not deliver the merchandise; (ii) the sellers does not submit the cerficates related to the merchandise to the purchaser; (iii)the purchaser does not conduct the payment; (iv) the purchaser does not receive the merchandise. Whether what the purchaser expects is deprived or not also depends on whether the quality of the merchandise fails to meet the standards regulated by the contract: (i) Purchasing for resale (commercial capability of the merchandise); (ii) Purchasing for use (usability of the merchandise). [1]
3/ The predictability of the consequences caused by the acts of breach (the detriment is severe enough to the level of considerable deprivation of what the violated party is entitled to expect from the contract).
3.1. Predictability includes the cases in which the parties have already had the agreement and prediction. The following cases should be taken into account:
- If the parties have already made it clear in the contract that the specific obligations or the manner in which the obligations are carried out would be the important content to the parties, the importance of those obligations has no reason to be reduced by the principles of predictability;
- If the parties have already discussed the importance of one specific obligation and the manner in which it is carried out but no further regulations is stated in the contract and the violated party can prove this, the violator cannot hold on to the idea that they could not foresee the consequence of the act of breach;
- Only when the importance of the violated obligation is not specifically stated in the contract or is not clearly mentioned in the negotiation episodes of the contract the predictability of the violator needs to be taken into account.
- Specific penalty when the violator deliberately deliver the merchandise late, or deliver the inappropriate merchandise in terms of types and formats as well as when there is any act of fraud in the manner or means of payment.
3.3. These following cases can be taken into account when predictability is being looked at: (i) If the parties have already made it clear in the contract that the specific obligations or the manner in which the obligations are carried out would be the important content to the parties, the importance of those obligations has no reason to be reduced by the principles of predictability; (ii) If the parties have already discussed the importance of one specific obligation and the manner in which it is carried out but no further regulations is stated in the contract and the violated party can prove this, the violator cannot hold on to the idea that they could not foresee the consequence of the act of breach; (iii) Only when the importance of the violated obligation is not clearly defined in the contract or not.
4. Specific suggestion to the corporate
By understanding fundamental breach of international purchase contract, the business institution and legal bodies can avoid losses. Within the scope of the article and works of experiment of our consulting job, we would like to have some suggestions:
- It is necessary to make reference to the law of the host country (the country which has already been a member of CISG 1980) during the period of getting to know the business partners.
- It is recommended to rely on the law companies of the host country during the process of forming the contracts.
- Identify the source of email.
- Make reference to the cases in international trade disputes during contract negotiations.
5. Conclusion
One of the most common legal risks which are most dealt with is the dispute over quality, copyright and insurance. When dealing with insurance contracts of other countries, it is needed to pay attention to the coverage and exclusion clause, since the language used in insurance contract is sophisticated, therefore if business people do notmake proper research on that issue, it will be hard to claims their rights when disputes arise. If any clause presents unclear to the business people, they should request an explanation from the insurance company.
One more thing to keep in mind: it should be stated clearly in the contract that every dispute related to the contract will be resolved by a specific center of arbitration, based on the rules of this center. Under no circumstance should it be written that the dispute will be resolve by referee or court, since this will cause both referees and courts unable to take the case of the business institution when dispute happens.
[1] https://treaties.un.org/doc/Publication/MTDSG/Volume%20I/Chapter%20X/X-7-a.en.pdf
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